The FCC’s Notice questions several aspects of the present TELRIC regime. CEI’s comments will focus on four of the problems the FCC raises, in addition to pointing out others with bearing on the best solutions. Specifically, we address

· The tension in TELRIC between the assumption that rates should reflect a state of monopoly for some purposes, and a state of facilities-based competition for others; more generally, the need for more “reality” in TELRIC accounting.

· The “black box” nature of TELRIC and the inconsistency between different state TELRIC regimes.

· The need for accountability in TELRIC cost proceedings, which the FCC expresses as a concern for transparency and verifiability.

· The question of how the FCC will know if it succeeds in its goal of making TELRIC cost proceedings simpler and more accurate.

In the course of discussing these issues, we raise several problems with TELRIC proceedings that will affect and limit the available solutions. These include 1) the high rate of appeal of ILEC/CLEC arbitration proceedings that makes recourse to TELRIC inevitable and 2) “Gaming” and political factors in TELRIC proceedings.

At the end of the day, no regulation can substitute for the market process.

The solutions we suggest the FCC consider, while in some respects unsatisfactory, are intended to counterbalance TELRIC’s worst flaws. For example, the FCC might require the state to defer to or at least refer to cost or access price figures developed in universal service, tax, or arbitration proceedings, or as revealed by actual builds of real networks (including CLEC, wireless, or cable networks). As the FCC notes, cost figures from other proceedings are in some respects based on assumptions inconsistent with TELRIC. But distortions introduced thereby would almost certainly be less than those presently introduced by political factors and just plain errors.